Originally published by AxiTrader
Market Summary
Stocks and bonds lower in the US and Europe overnight sets up a cautious end to the week for local markets today.
The Dow Jones Industrial Average finished down 0.11% at 20919, the S&P 500 dipped 5 points to 2394 but that’s a cracking performance and bounce from the lows. Even the Nasdaq 100 had a down day losing 0.22%.
The wash up is that SPI traders have marked prices down 7 points overnight suggesting a mild down day after yesterday’s disappointment and inability to hold above 5900 on the S&P/ASX 200.
On metals markets copper is up but well off its highs in what has been a pretty poor 24 hours trade for metals and iron ore across the globe. Gold has found support from the slight easing in risk appetite and oil is higher again as production cuts bite into inventories and the price action support higher levels.
On forex markets the impact of central bank policy is front and centre. The kiwi was the worst performer after yesterday’s neutral decision from the RBNZ while sterling is also down after the BoE proved more neutral than many expected. euro is a little lower but holding above important support and the Aussie found the buyers again and is back at 0.7379. Maybe it’s found a base for the moment.
Data overnight reinforced the US Federal reserve is on track to hike in June and today we’re still waiting on Chinese loans data.
Here's What I Picked Up (with a little more detail and a few charts)
- S&P 500 -5 (0.22) 2394 (7.36 Sydney - change since previous day)
- Dow -22 (0.11%) 20919
- Nasdaq -14 (0.22%) 6,115
- SPI 200 -10 (0.15%) 5,856
- AUDUSD 0.7374
- Gold $122
- WTI Oil $47.82 +0.47%
International
- We now know the real reason why Donald trump sacked Comey. He was a “showboat” the president told NBC in an interview. That’s in contrast to what the White House had been saying about the reasons but it many ways having watched the way president Trump conducts himself and reacts to things, both during the campaign and since taking office, this is a far more credible reason for the former FBI director’s sacking. That’s important for the conspiracy and impeachment theorists because it suggests they may be on the wrong track. That’s a behavioural point from me and off the track for this morning note but in a nutshell president Trump looks to me to be reacting in frustration to the Russia story stealing his administrations oxygen, and I think the legitimacy of his election victory, more than anything else.
- Anyway the acting FBI director said overnight the investigation is ongoing so we’ll eventually get to the bottom of this. But seems increasingly clear – again overnight – is that US intelligence agencies still believe that Russia did try to influence the 2016 election.
- Also, there is a subtle shift in the atmospherics of US stock markets occurring I think when I look at the price action. Yes last night was another one of those days where the buy the dip crowd came back in to buy off the lows, but there is a real and growing sense that the the Administration and its plans are adrift and the chances of the much vaunted tax and infrastructure plans finding support have now diminished even further with this FBI sacking.
- That’s a sentiment turner folks and it’s particularly important when the US dataflow – which was so crucial in supporting the Trumponomics rally – has turned so sour recently. The latest update of the Citibank US economic Surprise index at 19.2 this morning continues the recent run of weaker than expected data. And it's worth noting Lipper says US based stock funds saw an outflow for the second week in a row.
- So the level to watch on the S&P 500 is 2375/80 – physical and CFD levels respectively. If this zone breaks it will have repercussions on stock markets across the globe.
Elsewhere (BoE in the Forex section)
- The chances of a Fed hike in June continue to rise as does Boston Fed’s entreaty to his colleagues yesterday that they consider additional tightenings this year. I say that because even though I highlight the risks that the weak data poses the Fed has made it clear it thinks the economy will bounce back and is thus discounting current weakness. Rather, focussed on the jobs market and tightness there the Fed is almost compelled to act. Last night data showed initial jobless claims were down again and that continuing claims dropped to the lowest level in almost 30 years. Amazing given the difference in population and labour force size over that time.
- New York Fed president Bill Dudley warned about going down the trade war route and said he favoured a “very careful” rebalancing – TAPER – of the Fed’s balance sheet.
- In another sign things might soon be changing at the ECB, even though I forgot to report that president Mario Draghi said yesterday that policy won’t be altered in a hurry, it’s worth noting that the EU raised its growth forecasts and sees an improved outlook for unemployment. Growth in the EU is expected to be 1.7% this year and 1.8% next year while the awful level of unemployment across the zone is expected to improve to 9.4% from last year’s 10% level. Unemployment is expected to fall to 8.9% in 2018.
- High, still awful, but on the right track and a track which will see the ECB subtle shift policy. But don’t forget the ECB is where the Fed was a couple of years back. It won’t be hurrying to jack rates up.
- It seems Mexico is courting other nations to replace trade with the US should NAFTA renegotiations become acrimonious. A Mexican spokesman said “We will use (the China visit) geopolitically as strategic leverage. It sends the signal that we have many alternatives."
Australia
- Ugly. Yuck, what an awful day on the local stock market yesterday. You might be surprised to see me write that given we managed to rise a few points and close at 5,878 on the ASX200 index. But I say that with reference to the price action which saw the index trade to a 5922 high before it pulled back the best part of 50 points.
- Naturally, a big part of that is the bank's rally and then reversal over the day. The fact that the big 4 make up around 25% of the market's cap mean they swing a big bat through the overall index price action and they continue their battle with the government. The key to understanding this is that – as I tweeted earlier this morning – the banks face unprecedented regulatory and governmental scrutiny and us such headwinds to their businesses because they’ve helped create, or at least facilitated, potentially large negative externalities for the Australian economy.
- Certainly the banks are just doing what banks do - borrow and lend. But in feeding the housing boom, and the debt binge that has gone along with it, the banks are increasingly being viewed through the lens of the drug pusher. That’s harsh because Australians love housing and our big cities are where folks want to live. Equally, it’s the RBA and government policy which helped drive borrowers into the Banks arms. So it’s not hard to see why they are aggrieved and trying to fight back and threatening a mining tax-style campaign.
- But the reality is because they are Too-Big-Too-Fail - meaning the taxpayer is on the hook if they fall on hard times - the regulators and the government are being hard on them right now. But Australia has great banks, well managed and strong. And all this means the buying is likely to persist even as the bears line up against the banks. And that is important for the ASX200 and the SPI and where they head.
- Anyway, moving on the SPI is down 10 points this morning. We are still in a range but we’ll also be watching what happens in base metals markets closely as the price action suggests further falls
Forex
- Sterling fell almost from the second the Bank of England’s decision to leave rates on hold in a 7-1 vote was released last night. It’s at 1.2888 this morning down around 0.38% and part of that is because the BoE doesn’t seemed that worried about inflation in the next couple of years but it did say that perhaps the level of interest rates will need to rise faster than the yield curve has currently priced. It’s this balance which has enabled GBP/USD to again hold a fairly tight range. Although it is starting to look like lower levels are beckoning. My system is short sterling now after the break of 1.2926 last night.
- Elsewhere USD/JPY took a breather from its stellar, and steep, rally and is back at 113.83 this morning down 0.37%. There are tentative signs of a little top forming but 113.10/20 is the key. Only a break below that level would suggest a deeper retracement.
- Euro is still under a little pressure but found support in the 1.0820/50 region which is the key to the outlook for both it and in many ways the US dollar. It’s at 1.0865 now.
- The Aussie is up and about at 0.7379 for a 0.22% rise, the CAD has lost 0.3% against the US dollar. But it is the Kiwi which has had the hardest time of it in the past 24 hours after the RBNZ was more neutral than expected yesterday. At 0.6857 it is down 1.18% and holding above important support as I highlighted yesterday. Longer term though the Kiwi is likely to come under heavy selling pressure id 68 cents gives way.
Commodities
- Crude oil's rally continued again overnight as the positive break back above $47 a barrel in WTI terms combined with solid OPEC compliance data and news that a couple of smaller countries were going to join the OPEC production cut. WTI is sitting at $47.78 now up 0.95%, while Brent is 1.04% to $50.74
- For me though this is still about the drawdown in US inventories over the past month showing that OPEC's claims about market rebalancing have a little more integrity in the minds of traders due to the 13 million draw. That has to be the case because in its monthly report last night OPEC showed its competitors continue to ramp up production faster than they thought. OPEC said that “"U.S. oil and gas companies have already stepped up activities in 2017," OPEC said in the report "US tight crude output is expected to rise rapidly and increase by 600,000 bpd in 2017". For the record that’s the amount the non-OPEC countries like Russia agreed to cut in the production agreement.
- Things get a little harder from here as the chart below shows. My system is long and suggests higher prices but the first target was hit last night at $47.97. That said a move toward $48.78 is a chance.
- Gold is holding in with the dip in US stocks and pullback in US bond rates giving the bears some pause which lifted the downward pressure on prices. For three days now it has held above the low of $1214 which is an encouraging sign for the bulls. A move above $1228.50 would confirm a short term bottom.
- It’s a sea of red on base metal and iron ore markets last night. Yes, copper is higher in the US – almost exclusively in this group – but at $2.50 it is 5 cents below the high of the past 24 hours. 5 cents folks!
Have a great day's trading.